US tariffs: Why Christopher Luxon couldn’t lower US tariffs on New Zealand goods – Richard Prebble

Could Prime Minister Christopher Luxon have somehow got a better deal on US tariffs? Photo / Michael Craig

Opinion

THE FACTS

• The Trump administration imposed 15% tariffs on New Zealand exports, up from 10%, effective from August 7.
• New Zealand’s Vangelis Vitalis and Todd McClay travelled to Washington seeking a deal to lower tariffs.
• US President Donald Trump’s tariffs aim to spur US production but breach World Trade Organisation rules and face legal challenges.

Damien O’Connor, Labour’s trade spokesman, has criticised Prime Minister Christopher Luxon for “failing to secure a low tariff rate for our exports while others around the world, such as the EU and UK, have managed to make a deal”.

Are we to believe Chris Hipkins would have done better?

In April, O’Connor admitted he found it difficult to work out “how the US works at the moment”. He’s not alone.

Some are baffled as to why Australia has a lower rate than New Zealand. The answer lies not in diplomacy, but in Donald Trump’s world view. The President believes the United States’ trade deficit is caused by other countries taking unfair advantage. His solution? Impose tariffs on countries that run a trade surplus with the US in the belief that it will bring manufacturing home.

On April 3 (NZT), the President declared “Liberation Day” for American industry and announced a sweeping tariff plan: a 10% universal tariff on all imports and a punitive, up-to-50% tariff on countries running a trade surplus with the US.

No country, certainly not the United Kingdom, has negotiated to “secure a low tariff rate”. The best any country has done is reduce their proposed tariff.

The UK and European Union have trade agreements with the US. Australia and New Zealand do not. The result? The UK and Australia face a 10% tariff. New Zealand and the EU face 15%.

What’s the difference? Not the deal – the difference is the trade balance.

The US has a trade surplus with the UK and Australia. It has a trade deficit with the EU and New Zealand. That’s the “logic” behind the new rates.

Critics who want to blame Luxon must explain how Hipkins could have done better. Australia – despite being “America’s sheriff” – still hasn’t secured a meeting with Trump. Canberra is spending eye-watering sums on American nuclear submarines. It hasn’t helped.

Back in April, when Trump’s tariff list was released, New Zealand officials were surprised we had the same tariff as Australia. The best explanation? The White House’s grasp of geography. Uninhabited Antarctic Herald Island reportedly also received the same tariff. The best explanation is the White House thought New Zealand was part of Australia, a belief I have encountered often in America.

Any negotiation would have had to begin by explaining that New Zealand is not part of Australia, and having to admit we have a trade surplus.

Keeping our head down made sense. The minister publicly warned our tariff was likely to go up.

Those who think tough talk would have helped should look to Canada. A founding Nafta member and one of America’s closest allies, Canada has been negotiating longer than anyone. Its tariff? Thirty-five percent. If we had followed O’Connor’s advice, we too could have a 35% tariff.

Trade Minister Todd McClay has pointed out that New Zealand does not run a consistent trade surplus. Every time Air New Zealand buys a Boeing, the balance swings the other way. Over time, our trade is roughly even. If Trump’s tariffs were rational, we would have a free trade agreement.

But Trump doesn’t do rational.

Instead of engaging in politics, O’Connor should support New Zealand’s long-standing bipartisan trade policy. He should tell exporters that no New Zealand Government could have negotiated a better deal.

But he could also point out that these tariffs are not sustainable. It is Stein’s Law that what is unsustainable will pass.

What will change Trump is reality – and reality hit hard last Friday.

Trump claims tariffs will bring jobs home and be paid for by exporting countries. The textbooks say otherwise – and now the data do too.

Last Friday’s US jobs report revealed 258,000 fewer jobs than previously reported, due to sharp revisions for May and June. Trump responded by firing the independent commissioner who released the figures so no one will believe future job reports.

The job losses are exactly what economic theory predicts.

The latest data also say manufacturing is contracting and inflation remains above the Federal Reserve guideline.

Tariffs are sales taxes paid by consumers. While they hurt exporters, Americans pay the bill. According to the Yale Budget Lab, the new tariffs will cost the average American family around US$2400 ($4050) a year.

Voters in Ohio don’t like rising living costs any more than in Ōtara.

If Trump doesn’t make a U-turn – and he could – it is likely the Republicans, despite Texas gerrymandering, will lose the House next year. That would strip Trump of the power to impose tariffs, a responsibility that constitutionally belongs to Congress.

The Trump tariffs will not last. Exporters who can hang on will be the beneficiaries.